Will Higher Interest Rates Create Housing Crash?

We are all hearing about rising rates and a cycle overdue for a crash. Keep in mind, rising rates are a reflection of a strong economy. A strong economy typically increases demand for housing. Rising rates will also keep some people from selling, especially thosewith exceptionally low interest rates on thier current home. They will be reluctant to start over with a higher rate. Both of these issues lead to increased demand, which props up prices. Of course, housing is impacted by many factors and those could have an impact on pricing but any softening will be a symptom from another area like trade wars or government intervention and not interest rates alone.

There are countless owners who attempted to time the market and sold over the past few years to take advantage of this run-up. Of course, that has cost them a bunch of money since they missed out on some of the highest appreciation in memory.If I told you homes are more affordable now than they were in the 10+ years leading up to 2000, you might think I’m crazy! Interest rates are a huge factor in affordability. Back then, rates were around 8.9%. Today is more like 4.5%, almost half. If we assume a $700,000 home with 20% down, all other being equal, the payments go from approximately $3,555 to $5183 per month, including taxes and insurance. In addition, incomes have increased over that time.In terms of affordability, the peak back in 2006 was 25.4% of median income going toward housing payments compared to today where it is 17.1%. What’s more, if rates go to 5%, affordability will be at 19%, still below pre 2000 and way below the 2006 peak. At 6%, it would be 21.2% which puts it right in line with pre 2000 levels. Even at 7%, it would be below the peak of 2006 at 23.5%.So, if you are waiting for a better time to buy a home, it might be a while before it’s better than now!

MLS® Disclaimer

Based on information from California Regional Multiple Listing Service, Inc. as of December 19, 2018 2:35 AM. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.

Based on information from CARETS as of December 19, 2018 2:35 AM. The information being provided by CARETS is for the visitor's personal, noncommercial use and may not be used for any purpose other than to identify prospective properties visitor may be interested in purchasing. The data contained herein is copyrighted by CARETS, CLAW, CRISNet MLS, i-Tech MLS, PSRMLS and/or VCRDS and is protected by all applicable copyright laws. Any dissemination of this information is in violation of copyright laws and is strictly prohibited.

Any property information referenced on this website comes from the Internet Data Exchange (IDX) program of CRISNet MLS and/or CARETS. All data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be, verified by broker or MLS. All information should be independently reviewed and verified for accuracy. Properties may or may not be listed by the office/agent presenting the information.

Based on information from California Regional Multiple Listing Service, Inc. as of December 19, 2018 2:50 AM. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.

Based on information from CARETS as of December 19, 2018 2:50 AM. The information being provided by CARETS is for the visitor's personal, noncommercial use and may not be used for any purpose other than to identify prospective properties visitor may be interested in purchasing. The data contained herein is copyrighted by CARETS, CLAW, CRISNet MLS, i-Tech MLS, PSRMLS and/or VCRDS and is protected by all applicable copyright laws. Any dissemination of this information is in violation of copyright laws and is strictly prohibited.

Any property information referenced on this website comes from the Internet Data Exchange (IDX) program of CRISNet MLS and/or CARETS. All data, including all measurements and calculations of area, is obtained from various sources and has not been, and will not be, verified by broker or MLS. All information should be independently reviewed and verified for accuracy. Properties may or may not be listed by the office/agent presenting the information.